Business went from bad to worse in late April, with the outbreak of the H1N1 flu virus, also known as swine flu. The virus has infected more than 12,500 people worldwide, with the highest death toll in Mexico, causing some U.S. travelers to reroute, delay or cancel trips to Mexico completely.

American travelers, who represented 80 percent of the country's booming $13 billion travel industry last year, are a critical part of Mexico's economy.

"The swine flu sealed our fate," said Bob Boulogne, chief operating officer at Rosewood Hotels & Resorts, which owns several luxury properties along golden beaches and in the mountains of Mexico.

Some of his hotels were only 25 percent full after the H1N1 outbreak. The flu panic has forced the company to lay off hotel staff in Mexico, with many of the local hires told to return to their home cities and villages.

"The reality is, Mexico is very safe," Boulogne added. "Life is normal except for there are no Americans here."

Don't Miss

Hotels and local businesses are struggling to recover from low visitor numbers, according to the Mexico Tourism Board. Hotel occupancy was down more than 25 percent in April, and daily room rates dropped 11 percent, according to preliminary data from leading hotel industry watcher Smith Travel Research Inc. Tour operators and airlines also have taken a beating and are trying to entice travelers with price cuts, promotions and upgrades.

"We've never been hit so hard," said Eduardo Chaillo, U.S. regional director at the Mexico Tourism Board. "It's worse than September 11 or hurricanes. That only affected some of the destinations, but this year, all of Mexico is hurting."

In 2008, more than 18 million Americans visited the country, according to the Mexico Tourism Board. To achieve these numbers again, the board will aggressively invite American travel groups, associations and those critical of the tourism industry to visit in the next two weeks. Chaillo said he wants travel officials to spread the word that Mexico is safe and ready for tourists.

The group also launched a Web site, Mexico-update.com, in January to improve transparency to travelers by providing alerts and hot lines that answer questions about violence and situations such as the recent H1N1 outbreak.

Tourism industry officials said the media hype around swine flu was overblown. In recent days, scientists have said the outbreak may prove to be less severe than first suspected, and that the virus acts similarly to the typical seasonal influenza that can be treated successfully. Despite less media coverage about the flu, Mexico's travel industry still will need to overcome the stigma driven by the perception among Americans that Mexico is dangerous.

Alice Grotnes, 53, of Dunwoody, Georgia, said she isn't too worried. She headed off to Cabo San Lucas last week with friends and family for a relaxing vacation at the beach. Between packing her bags and doing research on Cabo, Grotnes said she is confident Mexico is safe.

"We're just taking a lot [of] hand sanitizer and having at it," she said before leaving.

Tourists such as Grotnes coming to Mexico bring assurance to tourism officials eager for recovery.

Some signs of tourism recovery already have started to appear in recent weeks. The flurry of cancellations has slowed drastically, and some hotels said bookings picked up for Memorial Day weekend. Several major cruise lines have resumed stops in Mexico.

Officials at the Mexico Tourism Board said they believe the tourism business will recover by the end of the year.

And thanks to the law of supply and demand, travelers may find some of the best deals to Mexico in years with ideal travel conditions. Airports, hotels and tourist hot spots are less crowded than normal.

Airfares have plunged in recent weeks. Compared with June 2008, data looking at round-trip airfare between select U.S. cities to the Cabo San Lucas airport next month have plunged, on average, 35 percent, according to FareCompare, a travel research Web site. Flights to Mexico City this June also have fallen. For example, a flight from Newark Liberty International Airport in New Jersey to Mexico City will run $285 for a round-trip ticket, compared with $498 a year ago.

A handful of hotels, including luxury hotel company Karisma Hotels & Resorts, are so confident their guests are safe they are touting "flu-free guarantees." In the unlikely event guests should contract H1N1 during a stay through the end of June, guests would receive their next three stays free if they prove they have been infected with a doctor's note. The company also will pay for doctor visits if guests feel ill, said Mandy Chomat, vice president of marketing at Karisma.

Auberge Resorts, which operates the Esperanza resort in popular Cabo San Lucas, is accelerating summer promotions in light of the flu scare. The packages offer free airport transportation and breakfast. The property saw reservations drop by 40 percent three days after H1N1 dominated the headlines, according to Caroline MacDonald, the company's senior vice president.

Online travel companies are seeing flight and hotel packages to Cozumel and Cancun fall as much as 50 percent. Expedia.com reported a 15 percent drop in hotel rates across the board in the month of April compared with April 2008.

"It's just a really good time for travelers to stretch their dollar and get a great vacation," said Ian Jeffries, a spokesman for Expedia.com. "We're hearing anecdotally those who are keeping plans are being showered with service from the hotels so grateful to have them there."

Hotels and tour operators also are trying to quell traveler worries about border violence. Many of the isolated tourist spots have improved security, and the violence is often several hundred or a thousand miles away, tourism officials said.

"You have to realize that Mexico is a huge country," said Pauline Frommer, creator of the Pauline Frommer's Travel Guides.

Irasema Gonzalez, 29, of Atlanta, Georgia, is taking the hurdles in stride. Gonzalez was supposed to get married near Mexico City this month, but with 250 guests flying in from all around the world, she postponed the event because of travel difficulties. But she still plans to have her dream wedding in Mexico, her home country, this fall.

"I hope things don't get worse in Mexico," said Gonzalez, who is working on rescheduling the wedding itinerary and sorting out plans for food and decorations. "You never know what could happen, but I am hoping and praying everything will be OK."